High stakes David Jones play could deliver Solomon Lew a $207m Country Road payday

Jared Lynch and Sue Mitchell

Woolworths’ anticipated bid for Country Road comes after Solomon Lew built up a position in David Jones, which is the subject of a $2.2 billion takeover offer from the South African retailer. Photo: Glenn Hunt

Billionaire rag-trader Solomon Lew is set to have a $207 million pay day after South Africa's Woolworths launched an all cash takeover for Country Road.

The bid values the fashion chain at $1.76 billion and aims to shatter a 17-year deadlock between Mr Lew and Woolworths.

It is also the latest move in Woolworths’ $2.2 billion play for upmarket department store David Jones. Mr Lew, who owns an 11.8 per cent of Country Road, has been busily buying shares in David Jones.

Last week it emerged that he was the company’s biggest shareholder, having amassed 53.1 million shares.

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He is believed to have been threatening to block the David Jones acquisition unless Woolworths acquires his Country Road stake, which is now worth about $170 million.

Woolworths already holds 88 per cent of Country Road and has offered $17 a share for the rest of the company. It is it’s second takeover attempt of Country Road.

Woolworths made a $2.00 a share takeover offer for the company in 1997, but Mr Lew’s Australian Retail Investments accrued a blocking take, preventing Woolworths from taking full control.

He became a major shareholder in February 1997, when Country Road shares were trading at $1.65.

If Mr Lew sells into the Woolworths’ offer he stands to make almost 9 times his money.

Country Road shares have soared from $4.83 in January to a record $15.40 in March - only two weeks before Woolworths unveiled its $2.2 billion offer for David Jones.

The shares are now around $14.00. However, if Woolworths buys Mr Lew’s stake it may trigger collateral benefits issues and jeopardise the David Jones scheme of arrangement.

So-called “collateral benefits” rules are aimed at ensuring all shareholders are treated equally. Under the rules, a bidder must not give a benefit to a person where that benefit is likely to induce him to accept the offer and where the benefit is not offered to all shareholders.

Collateral benefits rules apply to takeover offers, not schemes of arrangement. However, the Australian Securities and Investments Commission and the Takeovers Panel believe principles behind collateral benefits should also apply in schemes.

David Jones’ minority shareholders could argue that Mr Lew – by agreeing to sell his stake in Country Road – is receiving a benefit.It is understood that Woolworths has made no prior agreement with Mr Lew, nor is it planning any extra benefit or a side deal.

Woolworths (WHL) chief executive Ian Moir, said: “In light of the proposed acquisition of David Jones, this is a common sense and timely opportunity to seek to reach full ownership of Country Road’’.

‘‘If successful, the offer will allow WHL to delist Country Road, allowing WHL to simplify its group structure and fully integrate the businesses.”

But the offer for Country Road could also constitute new information and require supplementary disclosure and an updated independent experts report, further delaying the David Jones shareholder meeting.

Last week David Jones postponed the scheme meeting for two weeks to give its board more time to assess the implications of Mr Lew’s move.

David Jones’ advisers are also believed to be considering whether Mr Lew should be allowed to vote his stake at the scheme meeting, as he could be deemed an associate of Woolworths.

Meanwhile, a source close to Woolworths denied that it had done a ‘side deal’ to buy out retail magnate Solomon Lew and secure his support for the David Jones offer.

“There is no prior agreement, there is no side deal or extra benefit for Mr Lew,” the source said.

“We have simply put forward what we think is an offer which is justifiable for Woolworths and, if successful, it will be a great outcome for their shareholders.”